BOJ Urged to Maintain Cautious Approach Amid Rising JGB Yields

Bank of Japan (BOJ) board member Asahi Noguchi emphasized a cautious approach to monetary tightening, saying no major changes are needed to the central bank’s bond tapering plan unless severe market disruptions arise. His comments suggest the BOJ is not rushing to address the recent surge in super-long Japanese government bond (JGB) yields.

Noguchi, known for his dovish stance, stressed that interest rate hikes should be gradual to ensure Japan reaches its 2% inflation target, underpinned by sustainable wage growth. “The BOJ must take a step-by-step approach, carefully assessing the economic impact of each move,” he stated during a Thursday speech.

Yields on super-long JGBs hit record highs this week, fueled by political calls for increased fiscal spending—adding pressure as the BOJ attempts to normalize policy after exiting its yield curve control last year. The central bank raised its short-term policy rate to 0.5% in January, citing progress in achieving stable inflation.

Noguchi reiterated that the BOJ has room to reduce its balance sheet gradually and that emergency bond buying would only be necessary in the face of severe market instability. The BOJ is set to review its current taper plan, which runs through March 2026, at its next policy meeting.

Despite inflation exceeding 2% for three consecutive years, Noguchi noted that the rise has been largely due to import costs, not wage-driven consumption. He warned that Japan has yet to see service-sector inflation consistently exceed 2%, a key indicator of sustainable inflation.

Noguchi’s remarks underline the BOJ’s cautious stance amid global economic uncertainties and reinforce the importance of wage-driven inflation in achieving lasting monetary stability.